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Thursday, 5 March 2015

Tax deductions

One often encounters high tax
deductions while working in Germany. However, it is not an easy job to analyse
for what and how much is the amount one pays to the government. This post will
help to clarify this information for foreigners working or who wish to work in
Germany.

How much?

An income of above €8,354 is taxable
(€16,708 for a married couple)

An income of above €52,882 for a
single person (€105,764 for a couple) is then taxed at a rate progressively
increasing from 14% to 42%

Incomes from €52,882 (€105,764)
up to €250,730 (€501,460) are taxed at 42%

Incomes over €250,731 for a single
person and €501,462 for a married couple are taxed at 45%

For what?

There are several components
which constitute the overall tax percentages mentioned above. These components
are listed and explained below.

Solidarity Surcharge (5.5% of
income): To cover the costs of integrating the states of the former East
Germany

Obligatory Pension Scheme (9.35%
of income): To secure income even after retirement

Unemployment insurance (1.5% of
income): To provide a fixed amount during the period of no-job

Health insurance (8.2% of
income): To cover hospital, doctor or other medical expenses

Disability insurance (1.425% of
income): To secure income in case of disability occurrence

Wage tax: work tax

Some more information...

Tax classes

class I = single

class II = single parent

class III = married and spouse has no income or
lower income

class IV = married and similar income to spouse

class V = opposite of class III, i.e. this is
the class your lower earning spouse has if you have III